Skoda Bets on New Models to Turn Around China Sales

The Skoda Auto AS Rapid Spaceback is displayed at the IAA international motor show in Frankfurt. Photographer: Thomas Lohnes/Getty Images

July 9 (Bloomberg) -- Skoda Auto AS, the Czech mass-market
brand owned by Volkswagen AG, is counting on new models and
dealership facelifts to turn around sales in China this year and
help its parent company become the world’s biggest carmaker.

The manufacturer expects its new Rapid Spaceback compact
car, next-generation Octavia sedan and a new version of the Yeti
sport utility vehicle to lift sales more than 10 percent by the
end of the year, Skoda China President Andreas Hafemann said in
a July 7 interview in Beijing.

“We did a lot of homework regarding the brand and also the
vehicles,” Hafemann said. “With the products, it’s the
expansion, it’s going into segments which we were not positioned
in the past.”

Reaching its sales target would lift Skoda out of a slump
in China, where it was one of only two mass-market foreign
brands -- Suzuki Motor Corp. is the other -- to see a decline
last year in deliveries in the world’s largest auto market,
according to researcher IHS Automotive. Nationwide, consumers
bought 16 percent more passenger vehicles than a year earlier.

Skoda sold 227,000 units in China last year, 3.7 percent
fewer than a year earlier. Deliveries have increased 8.2 percent
in the first five months of this year, compared with an 11
percent increase in the passenger-vehicle market.

The company aims to more than double deliveries in China by
2018, supporting VW’s bid to unseat Toyota Motor Corp. as the
leading global carmaker by that same year.

Competing Brands

Such growth will require Skoda to avoid competition with
its parent company’s namesake brand, which IHS Automotive says
enjoys the perceived prestige of German engineering. The VW
marque also features models at comparable, or slightly higher,
prices.

Skoda’s top-selling Octavia sedan starts at 119,900 yuan
($19,000), according to the company’s website, while the VW
Lavida, one of China’s most popular sedans, costs 107,800 yuan,
based on data from Autohome.com.

“Consumers here truly believe in German brands and Skoda
hardly is one,” said Lin Huaibin, a Shanghai-based analyst for
IHS Automotive. “If you have to pay almost the same price as a
Volkswagen, why not just go straight for a Volkswagen model
instead?”

Hafemann said Skoda emphasizes the value of its products,
such as more legroom and headroom, easy-to-access trunks and
distinctive design features, like C-shaped tail lights. The
brand’s European heritage is also an advantage and he considers
carmakers like Ford Motor Co. and Hyundai Motor Co. the brand’s
main competitors.

More Value

“The price position, I think, is on the good level,”
Hafemann said. “The strategy is that we’re definitely below
Volkswagen. When you compare it also, what is in the car, what
is outside the car, we provide a little bit more value.”

To meet its growth targets, Skoda is going to need more
customers like Zhou Wen, who has driven an Octavia for six
years.

“This car drives well, I’ve never had any problems with
it,” said Zhou, who works as a regional sales manager in
Shanghai for a French multinational company. “I’m glad I bought
it over the Ford Focus, which I was also considering.”

Skoda is aiming to reach more potential buyers by
increasing its Chinese dealerships by at least 10 percent to
about 360 by the end of the year, according to Hafemann. Sales
floors will get brighter lighting and more inviting layouts to
attract consumers, he said.

Product Line

Skoda is also working with its partner, Shanghai Volkswagen
Automotive Co., to expand its product line beyond the six models
it already assembles in China: the Fabia, Octavia, Rapid, Rapid
Spaceback, Yeti and the Superb.

The brand will introduce another as-yet-unnamed SUV that’s
bigger than the Yeti, Hafemann said. He declined to say when
that model would hit showrooms.

That would go some way toward reducing Skoda’s reliance on
sedans, a segment that has seen slower growth than the roomier
categories, according to researcher LMC Automotive.

China’s multipurpose vehicle sales surged 56 percent in the
first five months of this year while SUV sales jumped 38
percent, according to the state-backed China Association of
Automobile Manufacturers. Sedan deliveries increased 5.4 percent
in the same period.

“At the moment, they’re focused too much on the sedan
side,” John Zeng, managing director of LMC Automotive in
Shanghai, said of Skoda. “They need to try to improve their
product portfolio.”